US-based cryptocurrency firm Celsius has filed for Chapter 11 bankruptcy on Wednesday.
One of the most prominent players in the crypto lending space, cryptocurrency company Celsius issued a statement on Wednesday announcing that it had filed for bankruptcy in the US after it paused withdrawals, swaps, and transfers on its platform "to stabilise its business and protect its customers" starting June 12.
Alex Mashinsky, co-founder and CEO of Celsius, said: “This is the right decision for our community and company."
The company has filed for Chapter 11 bankruptcy protection in the US Bankruptcy Court for the Southern District of New York.
Chapter 11, also known reorganisation bankruptcy, involves a rejig of a debtor’s business affairs, debts, and assets while staying in business.
The US crypto lender has said that it had $167 million on hand to provide liquidity to support certain operations during the restructuring process.
"I am confident that when we look back at the history of Celsius, we will see this as a defining moment, where acting with resolve and confidence served the community and strengthened the future of the company," Mashinsky said.
In May 2022, Celsius had more than $8 billion in client loans and nearly $12 billion in assets under management (AUM). In June, the company said that it had 1.7 million customers and was providing yields as high as 17 percent.
Celsius would lend its customers' crypto to decentralised finance (DeFi) firms who were willing to pay sky-high interest in return. Celsius would pass on some of this revenue with its users and keep the remaining.
However, liquidity crunch that the industry faced, coupled with crypto winter caused it to fail.
What caused the fall?
In Dec 2021, Mashinsky stated that the company lost money after BadgerDAO, a lending platform, was hacked for $120 million.
Celsius invested a lot of money in buying staked ETH or stETH through Lido Finance. But on May 13, 2022, Lido tweeted that the 1:1 peg of stETH with ETH was destabilised. So now, for every $1 worth of ETH that they owed back to the users, they were left with only $0.94. Along with this falling exchange rate, lack of liquidity created problems for Celsius.
stETH is traded primarily on Curve, which only had a daily liquidity capacity of approximately $30 million. Hence Celsius was left with 445,000 illiquid stETH worth $540 million.
Consequently, on June 12, 2022, Celsius froze all deposits and withdrawals. As a result, the company's CEL token fell more than 70 percent. Celsius then managed to repay its last major outstanding loan to Compound, soon after filled bankruptcy.
First Published: IST